Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model. NEW YORK ( TheStreet) -- Citi Trends (Nasdaq: CTRN) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself.
- EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, CITI TRENDS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for CITI TRENDS INC is currently lower than what is desirable, coming in at 33.60%. Regardless of CTRN's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, CTRN's net profit margin of -6.00% significantly underperformed when compared to the industry average.
- In its most recent trading session, CTRN has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- CITI TRENDS INC has improved earnings per share by 21.7% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CITI TRENDS INC swung to a loss, reporting -$0.68 versus $1.43 in the prior year. This year, the market expects an improvement in earnings ($0.10 versus -$0.68).
- CTRN has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Despite the fact that CTRN's debt-to-equity ratio is low, the quick ratio, which is currently 0.60, displays a potential problem in covering short-term cash needs.
-- Written by a member of TheStreet Ratings Staff